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IFRS 13 — Portfolios

Date recorded:

The issue concerning the interaction between the unit of account and the use of Level 1 prices when applying the portfolio exception as set out in IFRS 13 was discussed by the Interpretations Committee in May 2013. On the basis of the information presented, the Interpretations Committee was not able to answer the issue submitted. It decided that this matter should be considered by the IASB. The staff informed the IASB about the Interpretation Committee’s recommendation in May 2013. The IASB noted that the portfolio exception issue had similarities with the issue of the interaction between the use of Level 1 inputs and the unit of account that arises when measuring the fair value of investments in subsidiaries, joint ventures and associates. Consequently, the IASB tentatively decided to consider the portfolio exception issue before finalising the exposure draft that clarifies the fair value measurement of quoted investments in subsidiaries, joint ventures and associates. 

The issue that needed to be addressed is whether an entity was allowed to apply the portfolio exception in IFRS 13 for portfolios made up of Level 1 instruments and for which market risks are substantially the same. Furthermore, if the view was that the portfolio exception applies, there was a question on whether the Level 1 prices could be adjusted for relevant premiums or discounts?

The staff made the point that they did not believe that the portfolio exception was restricted to just Level 2 or 3. However, the staff was also of the view that the intention of the IASB was not to override the fundamental principles in IFRS 13 to maximise the use of observable market information.

The staff recommendation was that the portfolio exception should not be limited to Level 2 or 3. They believe that the application of the portfolio exception would be similar to the result that would be achieved if the mid-price was used and adjusted for bid offer spreads.

The staff also recommended that an example be added to IFRS 13 to illustrate the application of the portfolio adjustment to the scenario of Level 1 prices.

The Board supported the staff recommendation.

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